Rising Earnings Inequality in Urban China during 1988-2007 Li Shi School of Economics and Business Administration, BNU Song Jin School of Economics and.

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Presentation on theme: "Rising Earnings Inequality in Urban China during 1988-2007 Li Shi School of Economics and Business Administration, BNU Song Jin School of Economics and."— Presentation transcript:

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Rising Earnings Inequality in Urban China during Li Shi School of Economics and Business Administration, BNU Song Jin School of Economics and Business Administration, BNU and Deng Quheng Institute of Economics, CASS

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Background Economic reform in China since early 1990s. The privatization of state-owned enterprises; The development of private firms and self-employment; The reform of wage systems in public sector. Wage reforms ongoing within SOES To enhance incentives, distribute wage according to performance of workers and enlarge wage differentials among workers.

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Background Figure 1. Number of workers in state-owned and urban collective enterprises as a percentage of all workers in urban China. Source: National Bureau of Statistics (2008).

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Research Questions What are the main driving forces for increasing income inequality? Different characteristics distribution? Different earnings determination mechanism? To what extent do they contribute?

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Brief Literature Review-2 Work experience Decreasing role in earnings determination in urban China at beginning of economic reform. In the planned economy, seniority was more important. (Knight and Song, 1993) Between , wage of SOE workers increased with work experience. (Meng and Kidd, 1997) From the mid 1990s, the relationship weakened (Knight and Song, 2008)

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Methodology Introduction --Decomposition of earning inequality Fields (1998) decomposition The contribution of the jth income source to inequality indices of income.

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Data Used Urban survey of CHIPS Data set CHIP– China Household Income Project Collected by the Institute of Economics, Chinese Academy of Social Sciences, and later on by BNU. Keeping people who were 16 to 60 aged workers with positive income, in our paper, for 1988, individuals were selected; for 2007, 9053 were selected.

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Data Used To combine these two datasets together, 1. Select the same provinces; 2. Adjust earnings of 2007 at 1988 prices; 3. Adjust provincial PPP; 4. Weight sample according to actual provincial employment and employment in different ownership.

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Conclusions The earnings inequality has been significantly increasing in urban China since the end of 1980s. In terms of Gini, the increase is 70%. For the driving forces behind, The increased return to human capital Results of marketization process The rising gap between gender and among regions/ownerships Market segmentation